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Wednesday, May 22, 2013

American Monetary Policy - The Root Of All Evil

Hidden History: According to Benjamin
Franklin, the real reason for the Revolutionary War has been hid from
you

American history has been a compendium of our ongoing battle with the
privately controlled Bank of England, beginning with the revolutionary
war. To understand our history, we need to go back to Benjamin Franklin
who is often called the "father of paper money" though it been used
thousands of years earlier (more accurately, he was the father of
colonial American paper money).

Franklin's paper money was a primary reason for fighting America's
War for Independence. But first, let's explore colonial scrip money...
In 1729 he wrote “A Modest Enquiry into the Nature and Necessity of a Paper Currency.”

"This pamphlet, a brilliant tour de force, was well
received by the common people. The rich, however, hate it, but they have
no writers among them able to answer it. Franklin’s arguments carry the
day, and the paper money bill gains a majority in the [Pennsylvania]
assembly." - link

Colonial srip was very succesful:
“There was abundance in the Colonies, and peace was reigning on
every border. It was difficult, and even impossible, to find a happier
and more prosperous nation on all the surface of the globe. Comfort was
prevailing in every home. The people, in general, kept the highest moral
standards, and education was widely spread.” - Benjamin Franklin
No doubt, many of the colonies were doing very well, especially
Pennsylvania and Massachusetts where the amount of new paper money was
controlled. But not all the colonies had the same success as earlier
attempts in South Carolina resulted in a currency deprecation. A system
was clearly needed and Franklin forged that system with his - "A Modest Enquiry into the Nature and Necessity of a Paper Currency.”

Franklin begins his pamphlet by noting that a lack of
money to transact trade within the province carries a heavy cost because
the alternative to paper money is not gold and silver coins, which
through trade have all been shipped off to England, but barter. Barter,
in turn, increases the cost of local exchange and so lowers wages,
employment, and immigration. Money scarcity also causes high local
interest rates, which reduces investment and slows development. Paper
money will solve these problems.
But what gives paper money its value? Here Franklin is clear
throughout his career: It is not legal tender laws or fixed exchange
rates between paper money and gold and silver coins but the quantity of
paper money relative to the volume of internal trade within the colony
that governs the value of paper money. An excess of paper money
relative to the volume of internal trade causes it to lose value
(depreciate).
First, Franklin points out that gold and silver are of no permanent
value and so paper monies linked to or backed by gold and silver, as
with bank paper money in Europe, are of no permanent value. Everyone
knew that over the previous 100 years the labor value of gold and silver
had fallen because new discoveries had expanded supplies faster than
demand. The spot value of gold and silver could fluctuate just like
that of any other commodity and could be acutely affected by unexpected
trade disruptions. Franklin observes in 1729 that “we [Pennsylvanians]
have already parted with our silver and gold” in trade with England, and
the difference between the value of paper money and that of silver is
due to “the scarcity of the latter.”
Second, Franklin notes that land is a more certain and steady asset
with which to back paper money. For a given colony, its supply will not
fluctuate with trade as much as gold and silver do, nor will its supply
be subject to long-run expansion as New World gold and silver had been.
Finally, and most important, land cannot be exported from the province
as gold and silver can. He then points out that Pennsylvania’s paper
money will be backed by land; that is, it will be issued by the
legislature through a loan office, and subjects will pledge their lands
as collateral for loans of paper money.
Finally, Franklin argues that “coined land” or a properly run land
bank will automatically stabilize the quantity of paper money issued —
never too much and never too little to carry on the province’s internal
trade. If there is too little paper money, the barter cost of trade
will be high, and people will borrow more money on their landed security
to reap the gains of the lowered costs that result when money is used
to make transactions. A properly run land bank will never loan more
paper money than the landed security available to back it, and so the
value of paper money, through this limit on its quantity, will never
fall below that of land.
If, by chance, too much paper money were issued relative to what was
necessary to carry on internal trade such that the paper money started
to lose its value, people would snap up this depreciated paper money to
pay off their mortgaged lands in order to clear away the mortgage
lender’s legal claims to the land. So people could potentially sell the
land to capture its real value. This process of paying paper money
back into the government would reduce the quantity of paper money in
circulation and so return paper money’s value to its former level.
Automatic stabilization or a natural equilibrium of the amount of
paper money within the province results from decentralized market
competition within this monetary institutional setting. - link

When the colonies united to fight for their freedom, congress issued
Continental dollars (redeemable in silver and gold) to pay for the war.
Unfortunately, the U.S. had no gold or silver and promised to pay
later. The value of the currency deprecated since many knew that it was
unlikely that they would ever be able to redeem the obligation. And
England printed large amounts of counterfeit Continentals to devalue the
currency.

In a letter to Joseph Quincy in 1783, Franklin claims
that he predicted this outcome and had proposed a better paper money
plan, but that Congress had rejected it...around 1781 Franklin writes a
tract called “Of the Paper Money of America.” In it he argues that the
depreciation of the Continental dollar operated as an inflation tax or a
tax on money itself. As such, this tax fell more equally across the
citizenry than most other taxes. - link

The term "fiat" money is very misleading, as you can see the colonial
scrip was backed by the collateral of land. And so it is today, as
private Federal Reserve notes are backed by the people and property of
the United States. The banks may profitably create it for virtually
free but it is backed by us; so why does our nation pay others for money
that we alone secure?
On to the Revolutionary War....
Before the war, the colonies sent Benjamin Franklin to England to
represent their interests. Franklin was greatly surprised by the amount
of poverty and high unemployment. It just didn't make sense, England
was the richest country in the world but the working class was
impoverished, he wrote “The streets are covered with beggars and
tramps.”
It is said that he asked his friends in England how this could be so,
they replied that they had too many workers. Many believed, along with
Mathus, that wars and plague were necessary to rid the country from
man-power surpluses.“We have no poor houses in the Colonies; and if we had some,
there would be nobody to put in them, since there is, in the Colonies,
not a single unemployed person, neither beggars nor tramps.” - Benjamin Franklin
He was asked why the working class in the colonies were so prosperous.“That is simple. In the Colonies, we issue our own paper money.
It is called ‘Colonial Scrip.’ We issue it in proper proportion to make
the goods and pass easily from the producers to the consumers. In this
manner, creating ourselves our own paper money, we control its
purchasing power and we have no interest to pay to no one.” - Benjamin Franklin
Soon afterward, the English bankers demanded that the King and
Parliament pass a law that prohibited the colonies from using their
scrip money. Only gold and silver could be used which would be provided
by the English bankers. This began the plague of debt based money in
the colonies that had cursed the English working class.
The first law was passed in 1751, and then a harsher law was passed
in 1763. Franklin claimed that within one year, the colonies were
filled with unemployment and beggars, just like in England, because
there was not enough money to pay for the goods and work. The money
supply had been cut in half.
Franklin, who was one of the chief architects of the American independence, wrote:

“The Colonies would gladly have borne the little tax on tea and
other matters had it not been the poverty caused by the bad influence of
the English bankers on the Parliament, which has caused in the Colonies
hatred of England and the Revolutionary War.” - Benjamin Franklin

This opinion was confirmed by great statesmen of his era:

"I believe that banking institutions are more dangerous to our
liberties than standing armies. Already they have raised up a monied
aristocracy that has set the government at defiance. The issuing power
(of money) should be taken away from the banks and restored to the
people to whom it properly belongs." - Thomas Jefferson

History records that the money changers have used every form of
abuse, intrigue, deceit, and violent means possible to maintain their
control over governments by controlling the money and its issuance. - James Madison

“Banks have done more injury to the religion, morality,
tranquility, prosperity, and even wealth of the nation than they can
have done or ever will do good.” - John Adams

“It was the monetary system under which America’s Colonies
flourished to such an extent that Edmund Burke was able to write about
them: ‘Nothing in the history of the world resembles their progress. It
was a sound and beneficial system, and its effects led to the happiness
of the people.In a bad hour, the British Parliament took away from America its
representative money, forbade any further issue of bills of credit,
these bills ceasing to be legal tender, and ordered that all taxes
should be paid in coins. Consider now the consequences: this restriction
of the medium of exchange paralyzed all the industrial energies of the
people. Ruin took place in these once flourishing Colonies; most
rigorous distress visited every family and every business, discontent
became desperation, and reached a point, to use the words of Dr.
Johnson, when human nature rises up and assets its rights.”

Peter Cooper, industrialist and statesman wrote:

“After Franklin gave explanations on the true cause of the
prosperity of the Colonies, the Parliament exacted laws forbidding the
use of this money in the payment of taxes. This decision brought so many
drawbacks and so much poverty to the people that it was the main cause
of the Revolution. The suppression of the Colonial money was a much more
important reason for the general uprising than the Tea and Stamp Act.”

Our Founding Fathers knew that without financial independence and
sovereignty there could be no other lasting freedoms. Our freedoms and
national sovereignty are being lost because most people do not
understand our money system.

All the perplexities confusion and distress in America arise not
from defects of the Constitution, not from want of honor or virtue, so
much as from downright ignorance of the nature of coin, credit and
circulation. -John Adams

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